In our Software Leaders series, proven operators from the world’s top software companies share learnings and resources for teams earlier in their growth journey. This edition was based on a workshop that Matt Baumgartner gave at the Expedition Founder & CEO Summit. Matt has over 10 years’ experience working and investing in category-leading technology companies, and is the former Head of Product Commercialization at Toast where he managed labor-focused products such as Scheduling. Previously he led Toast’s Corp Dev and Strategy functions and helped launch and scale over 15 products that transformed Toast from a category-leading POS player into a broader platform (growing from $50m to $1B+ in ARR and doubling ARPU in his 5 years there).
Unlocking Growth: Key Insights from Customer Needs to Multi-Product Success
There are three critical elements for successfully scaling a business that Matt emphasizes for founders and CEOs:
- Really understanding end customer needs and pain points, and incorporating that into your product
- Deciding whether something is a product or a feature based on thorough research and consideration of build, buy, or partner options
- Expanding into multi-product offerings and moving up or down the value chain for higher ARPU and customer satisfaction
Understanding End Customer Needs and Pain Points
Start with a deep dive into understanding your customers. This isn’t just about casual conversations but involves significant customer work and profiling. Think about delving into the P&L of a typical customer, mapping their spend and workflows to spot where you can extend your offerings.
For example, if you notice a pattern where customers are spending a lot of time and money on a process related to your product, there’s an opportunity to innovate. By addressing these specific pain points, you can create products that not only meet but exceed customer expectations. This kind of insight-driven development leads to products that customers can’t live without. For Toast, this was instrumental in expanding into untapped parts of the customer workflow that no competitors looked at (e.g. bill-pay, insurance, employee, benefits, services marketplace, etc.).
The following slide gives a sense of the complexity in an SMB, but also the opportunities present for getting deep into a customer’s operations.
Source: Toast Investor Day 2024
Deciding Whether to Build, Buy, or Partner
When considering new features or products, Matt advises questioning whether to build, buy, or partner. This decision should be driven by research and a clear understanding of your market position. Do you have the right to win in this area? Are you a control point in your market?
This strategic thinking helps ensure that your resources are used efficiently and effectively. Below is a high-level framework:
- Build: This path is default and requires an R&D culture with a founder-mindset and rapid 0-1 iteration. This option can require fundraising trade-offs to move quickly. Here, determine where you need to be best-in-class vs. good-enough Note: from a resource perspective, you can’t build everything for your customer!
- Buy: At times this is a necessary evil, fais attention! Buying can be required in scenarios for specialised technology or talent (for Toast, for example, this was done in payroll via the acquisition of StratEx) Note: buying is a lot more work!
- Partner: Ecosystem is a foundational element to strong vertical SMB SaaS platforms. 1st party partner products (non-ecosystem) can be extremely powerful as ARPU drivers (e.g. insurance, lending, payments, delivery logistics). Partner enabled products are where core technology is expensive or too challenging to build (e.g. becoming an insurance carrier vs. using your data advantage in underwriting) Note: Is it of highly strategic value or a control point? If so, then we don’t want to partner!
Expanding into Multi-Product Offerings
Matt highlights the benefits of going multi-product and expanding up or down the value chain. This strategy can lead to higher ARPU (Average Revenue Per User) and better net retention. More importantly, it can significantly boost customer satisfaction.
Offering a suite of products that cater to various needs of your customers not only increases your revenue but also deepens your relationship with them. Customers appreciate the convenience and coherence of solutions from a single provider. This approach can transform your company from a single-product provider to a comprehensive solutions partner, making your customers more likely to stay loyal and recommend your company to others.
Toast started with POS, and quickly launched payment processing. Matt cautions founders and CEOs to be aware that when you’re expanding, you must understand whether you are still selling to the same decision maker. For example, for restaurants, the manager is the POS decision maker, but for payment processing, the accountant is heavily involved.
Source: Toast Investor Day 2024
Wrapping-up
Ultimately, these insights underscore the importance of deeply understanding your customers, making informed strategic decisions, and expanding your product offerings to drive growth. By focusing on these three areas, you can achieve higher ARPU, better net retention, and, most importantly, happier customers. This approach to scaling your business ensures that you’re not just growing, but growing in a way that’s sustainable and customer-centric!